Exhibit 10.23
THIRD ADDENDUM TO MASTER LEASE AGREEMENT
DATED AS OF NOVEMBER 19, 1997
BETWEEN
GATX CAPITAL CORPORATION
AND
RHYTHMS NETCONNECTIONS INC.
Dated as of March 31, 1999
This Addendum amends the Master Lease Agreement dated as of November
19, 1997, as amended by an Addendum to Master Lease Agreement dated December 31,
1997 and by a Second Addendum to Master Lease Agreement dated as of May 19, 1998
(as so amended, the "Lease"), between GATX Capital Corporation (formerly, Sun
Financial Group, Inc.) and Rhythms NetConnections Inc. All capitalized terms
used but not defined herein shall have the respective meanings given thereto in
the Lease.
1. ADDITIONAL FINANCING.
(a) COMMITMENT. Subject to the satisfaction of the conditions set forth
in paragraph 2 below, Lessor has agreed to provide up to $13,500,000 of lease
financing in addition to that previously provided to Lessee. The funding of each
Lease Order is subject to the satisfaction of the conditions set forth in
paragraph 3 below. Lessor's commitment to finance Equipment under this Addendum,
shall terminate on the date (the "Commitment Termination Date") that is the same
day of the month in the fifteenth month following the date hereof.
(b) TERM AND LEASE RATE FACTOR. The Initial Term of each Lease Order
financed under this Addendum shall be 36 months and the rental for the initial
Lease Order under this Addendum during the six-month period following the
funding of such initial Lease Order and for each subsequent Lease Order funded
during such six-month period shall be payable in accordance with Section 4 of
the Lease in an amount on each Rent Payment Date equal to the amount funded
under the applicable Lease Order multiplied by 3.0% (the "Lease Rate Factor").
The Lease Rate Factor for all Lease Orders funded following such six-month
period will be determined by calculating a new Lease Rate Factor using as the
implicit interest rate for such Lease Rate Factor the U.S. Treasury note rate
for notes having a 36 month term as quoted in THE WALL STREET JOURNAL on the
date of preparation of the first such Lease Order funded during such subsequent
period; provided, however, that no such adjustment shall be made unless and
until such U.S. Treasury rate shall have increased by more than 25 basis points
above the rate in effect on the date hereof.
(c) END OF TERM OPTIONs. Provided that the Lease has not been
terminated and that no Event of Default or event which, with notice or lapse of
time or both, would become an Event of Default shall have occurred and be
continuing, not more than 180 days and not less than 120 days prior to the
expiration of the Initial Term of each Lease Order funded under this Addendum,
by written notice to Lessor, Lessee shall irrevocably elect either the option
under clause (i) or a combination of the options under clauses (i), (ii) and
(iii) within the parameters set forth therein:
(i) Lessee may elect to purchase Equipment (excluding Soft
Cost Equipment, as defined in Paragraph 1(d)) having an original total
cost (determined with reference to the Equipment Addendum to the
applicable Lease Order) equal to at least 70% of the aggregate total
cost of the Equipment under such Lease Order for a purchase price equal
to the "Fair Market Value" (as defined below) thereof as of the end of
the Initial Term of such Schedule, but such amount shall not be less
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than fifteen percent (15%) of the aggregate total amount originally
funded with respect to the Equipment being purchased, nor more than
twenty-five percent (25%) of the aggregate total amount originally
funded with respect to the Equipment being purchased, under such Lease
Order, plus any applicable sales or other transfer tax.
(ii) Lessee may elect to return either (i) one hundred percent
(100%) of the Equipment (other than the Soft Cost Equipment, as defined
in Paragraph 1(d)), or (ii) Equipment (other than Soft Cost Equipment,
as defined in Paragraph 1(d)) having an original total cost (determined
with reference to the Equipment Addendum to the applicable Lease Order)
equal to not more than thirty percent (30%) of the aggregate total cost
of the Equipment subject to such Lease Order, in each case in the
condition required by the Lease.
(iii) Lessee may elect to renew the Lease with respect to any
Equipment not purchased or returned at the end of Initial Term of the
applicable Lease Order, for not less than twelve (12) months or the
remainder of an item of Equipment's remaining useful life if shorter,
for a rent equal to the "Fair Rental Value" (as defined below) of such
item for such additional period, which rent shall be paid monthly in
advance. At the end of the renewal term, Lessee shall elect one of the
options set forth in clauses (i), (ii) or (iii) of this paragraph (c).
"Fair Market Value" shall mean the estimated amount, as of a certain
date, at which the Equipment subject to the Lease may reasonably be
valued in the marketplace by a buyer who could choose not to buy and a
seller who could choose not to sell. In the event that the parties
cannot agree on a Fair Market Value amount, an independent appraiser
(mutually acceptable to Lessor and Lessee) with knowledge of the
Equipment, appropriate certification and experience utilizing Fair
Market Value as defined shall be retained to render an opinion.
"Fair Rental Value" shall mean the estimated amount, as of a certain
date, at which the Equipment subject to the Lease may reasonably be
valued in the marketplace by a lessee who could choose not to lease and
a lessor who could choose not to lease. In the event that the parties
cannot agree on a Fair Rental Value amount, an independent appraiser
(mutually acceptable to Lessor and Lessee) with knowledge of the
Equipment, appropriate certification and experience utilizing Fair
Rental Value as defined shall be retained to render an opinion.
(d) PAYMENTS FOR SOFT COSTS. With respect to any Equipment which is
deemed by Lessor to be soft cost equipment, including without limitation
software, software development costs, tooling, tenant improvements, custom-built
equipment, cabling, installation or freight costs (collectively, and excluding
collocation space costs, "Soft Cost Equipment"), at the time of the final Rent
Payment Date under each Lease Order, Lessee shall make a payment (in addition to
any payment under Paragraph 1(c)(i) or under Paragraph 1(c)(ii) hereof) equal to
fifteen percent (15%) of the total cost of the Soft Cost Equipment subject to
such Lease Order, plus any applicable sales or other transfer tax.
2. CONDITIONS TO EXECUTION OF THIS ADDENDUM. On or prior to the date of
execution of this Addendum by Lessor and the funding of the first Lease Order
under this Addendum, Lessor shall have received in form and substance
satisfactory to Lessor:
(a) A legal opinion of Lessee's legal counsel in form and
substance reasonably satisfactory to Lessor covering the
matters set forth in Exhibit A hereto.
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(b) Copies, certified by the Secretary or Assistant Secretary or
Chief Financial Officer of Lessee, of: (A) the
Certificate/Articles of Incorporation and By-Laws of Lessee
(as amended to the date of the Lease) and (B) the resolutions
adopted by Lessee's board of directors authorizing the
execution and delivery of the Lease and this Addendum, the
Lease Orders and the other documents referred to herein and
the performance by Lessee of its obligations hereunder and
thereunder.
(c) A good standing certificate (including franchise tax status)
with respect to Lessee from Lessee's state of incorporation,
the state where Lessee's chief executive office is located and
each state where Equipment is expected to be located, each
dated a date reasonably close to the date of acceptance of the
Lease by Lessor.
(d) Evidence of the insurance coverage required by Section 18 of
the Lease, if not previously provided to Lessor.
(e) All other documents as Lessor shall have reasonably requested.
3. CONDITIONS TO THE FUNDING OF EACH LEASE ORDER. Prior to the funding
of each Lease Order, Lessee shall have satisfied all of the following
conditions:
(a) Lessor shall have received:
(i) A Landlord's Waiver and Consent of each landlord of premises
on which Equipment will be located, substantially in the form of Exhibit
B hereto.
(ii) To the extent Lessor, in its commercially reasonable
business judgment, deems it necessary, a release or other arrangement
with any other lessor or lender to the Lessee to insure that there will
be no impairment of Lessor's interest in the Equipment subject to the
Lease Order.
(iii) Copies of invoices, purchase orders and canceled checks
relating to all Equipment being placed under the Lease pursuant to the
Lease Order and/or a Purchase Order and Invoice Assignment from Lessee to
Lessor substantially in the form of Exhibit C hereto.
(b) Lessee shall have filed or recorded, to the satisfaction of
Lessor, all instruments and documents, including, but not limited to,
precautionary Financing Statements on Form UCC-1 and releases and termination
statements on Form UCC-2, then deemed necessary by Lessor to preserve and
protect its rights hereunder, under the Uniform Commercial Code (including the
termination of any after-acquired property clause of third parties with respect
to any Unit).
(c) Lessor shall have received all other documents and Lessee shall
have performed all other acts as Lessor shall have reasonably requested to
consummate the transaction contemplated by the Lease Order.
(d) Except with the prior consent of Lessor, not to be unreasonably
withheld or delayed, the cost of Soft Cost Equipment which is financed under the
Lease Order shall not exceed fifteen percent (15%) of the total amount of such
Lease Order. Lessee will use its diligent efforts to obtain from the vendor of
any software financed under the Lease a consent to transfer the right to use
such software to a third party without further payment if an Event of Default
under the Lease exists.
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(e) On the date of funding of the Lease Order no Event of Default or
event, which with the passage of time or the giving of notice or both would
constitute an Event of Default, shall exist.
(f) Except with the prior written consent of Lessor which shall not
be unreasonably withheld, all of the Equipment subject to the Lease Order shall
consist of routers and ATM switches, DSLAMs, IP concentrators and servers and
related networking and information technology hardware and Soft Cost Equipment.
(g) The amount to be funded under the Lease Order shall not be less
than $4,000,000, as determined by reference to the Equipment Addendum to such
Lease Order.
Lessor may, in its sole discretion, terminate its commitment herein to fund
Lease Orders under the Lease if there is any material adverse change to the
general affairs, management, results of operations, condition (financial or
otherwise) or prospects of Lessee, whether or not arising from transactions in
the ordinary course of business.
4. FINANCIAL COVENANTS
(a) CERTAIN DEFINITIONS. The terms defined in paragraph 4 of the
Second Addendum to the Lease shall have the same meanings for purposes of this
paragraph 4 and of paragraph 4 to any subsequent addendum to the Lease.
(b) CONSOLIDATED OPERATING CASH FLOW. Lessee shall not permit its
Consolidated Operating Cash Flow for the fiscal quarter ending on the date set
forth below to be less than the amount set forth opposite such date below:
March 31, 1999 -17,507,993
June 30, 1999 -24,177,533
September 30, 1999 -34,689,886
December 31, 1999 -43,553,169
March 31, 2000 -50,273,067
June 30, 2000 -53,943,611
September 30, 2000 -61,496,059
December 31, 2000 -49,573,006
March 31, 2001 -58,453,548
June 30, 2001 -56,561,322
September 30, 2001 -60,855,319
December 31, 2001 -57,208,954
March 31, 2002 -50,796,277
June 30, 2002 -44,893,593
September 30, 2002 -55,406,092
A breach of a financial covenant under this paragraph 4 shall constitute an
"Event of Default" under Section 21 of the Lease.
5. REPORTING. The provisions of Section 5 (a) and (c) of the Second
Addendum to the Lease shall apply to this Third Addendum as if fully set forth
herein. In addition, within thirty (30) days of the end of each fiscal quarter
of Lessee, Lessee shall furnish to Lender a certificate of Lessee's Chief
Financial Officer or other senior officer stating that he or she has reviewed
the provisions of the Lease, this Addendum and any other addendum
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to the Lease then in effect, and that Lessee is not in default in the observance
or performance of any of the provisions hereof, or if Lessee shall be so in
default, specifying all such defaults and events of which he or she may have
knowledge, and setting forth the calculation of compliance or noncompliance with
each of the financial covenants set forth in paragraph 4 above.
6. NON-UTILIZATION FEE. Lessee agrees that by execution of the Lease it
has agreed to lease Equipment from Lessor having an aggregate cost of not less
than $8,100,000 (the "Minimum Funding Amount"). If Lessee fails at any time to
meet the Minimum Funding Amount because (a) it has not requested funding of
Equipment under the Lease in the amount of the Minimum Funding Amount, or (b) it
has failed to satisfy any condition to any funding of Eligible Equipment, then
Lessee shall pay to Lessor upon Lessor's request therefor a non-utilization fee
of 1.25% of the difference between the maximum amount of financing available
hereunder and the aggregate amount of Lease Orders outstanding hereunder on the
date of such request; provided, however, that Lessee shall not pay a
non-utilization fee upon more than one occasion during the term of this Third
Addendum. Lessee shall pay such non-utilization fee to Lessor, as liquidated
damages and not as a penalty, within ten business days of receiving Lessor's
request for payment thereof.
7. GOVERNING LAW. The first two sentences of Section 25(a) are amended to
read in their entirety as follows:
This Lease Agreement and any Lease Order hereunder shall be governed
in all respects by the laws of the State of California. Lessor and
Lessee agree that any dispute between them arising under this Lease
or any Lease Order shall be resolved in the state or federal courts
in the State of California located in the City and County of San
Francisco.
8. SURVIVAL OF TAX INDEMNITY. Section 23 shall be amended by adding at the
end thereof:
The provisions of this Section 23 shall survive the termination or
cancellation of this Lease.
IN WITNESS WHEREOF, Lessor and Lessee have executed this Addendum as of
March 31, 1999.
LESSOR: LESSEE:
GATX CAPITAL CORPORATION RHYTHMS NETCONNECTIONS INC.
By: /s/ Illegible By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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Name: Illegible Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
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Title: Title: Chief Financial Officer
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EXHIBIT A
MATTERS TO BE COVERED IN LEGAL OPINION
(a) Lessee is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and is duly qualified to
do business and in good standing in the State of California.
(b) Lessee has and had the requisite corporate power and authority to
execute, deliver and perform the Lease, the Third Addendum and the Lease Orders
and to issue the Warrant. All action on the part of Lessee, its directors and
its shareholders necessary for the authorization, execution, delivery and
performance of the Lease, the Third Addendum, the Lease Orders and the Warrant,
has been taken. The Transaction Documents have been duly executed and delivered
by an authorized officer of Lessee.
(c) The execution, delivery and performance of the Transaction
Documents (i) do not conflict with or violate any provision of Lessee's Restated
Certificate of Incorporation or Bylaws or of applicable law, (ii) do not
conflict with or constitute a default under any provision of any material
judgment, writ, decree, order or material agreement, indenture, or instrument to
which Lessee is a party or by which it is bound, and (iii) will not cause the
imposition of any Lien upon the assets or properties of Lessee.
(d) The Transaction Documents constitute legal, valid and binding
obligations of Lessee, enforceable in accordance with their respective terms. To
our knowledge, no filing need be made with any governmental authority with
respect to the Transaction Documents.
(e) The shares of Common Stock issuable upon exercise of the Warrant
have been duly authorized and reserved for issuance upon such exercise, and when
issued in accordance with the terms of the Warrant, will be duly authorized,
validly issued, fully paid and non-assessable.
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EXHIBIT B
LANDLORD WAIVER
RECORDING REQUESTED BY
AND WHEN RECORDED RETURN TO:
GATX CAPITAL CORPORATION
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Attn: Contract Administration
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LANDLORD'S WAIVER AND CONSENT
THIS LANDLORD'S WAIVER AND CONSENT (this "Waiver"), dated as of
________________________________, 199____, is executed by and between
___________________________________________________________,
____________________________________________________("Landlord")
and GATX CAPITAL CORPORATION ("Lessor").
RECITALS
A. Landlord and RHYTHMS NETCONNECTIONS, INC. ("Tenant") are parties to a
________________________________________________________________[Lease
Agreement], dated as of ____________________________ , 19 ________ (together
with any other agreement between Landlord and Tenant relating to the Premises,
as defined below, all as amended from time to time, to be referred to herein
collectively as the "Lease"), pursuant to which Landlord has leased to Tenant
that certain real property commonly known as , and more particularly described
in ATTACHMENT 1 hereto (the "Premises").
B. Tenant and Lessor intend to or have entered into a Master Lease
Agreement, dated as of November 19, 1997, as amended (the "Credit Agreement")
pursuant to which Lessor has agreed or will agree to lease to Tenant from time
to time certain equipment (the "Equipment") which will be located on the
Premises.
AGREEMENT
NOW, THEREFORE, in consideration of the above recitals and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Landlord and Lessor hereby agree as follows:
1. WAIVER AND CONSENT. Landlord hereby consents to the location of the
Equipment on the Premises and does irrevocably waive, disclaim and relinquish
and assign to Lessor any and all rights to impose, receive, assert or enforce
any lien, encumbrance, charge, security interest, ownership interest, claim or
demand of any kind against or involving the Equipment, whether arising by common
law, statute or consensually (under the Lease or otherwise) and whether now in
existence or hereafter created, including, but not limited to, those for rent or
other right of payment. This waiver, disclaimer, relinquishment and assignment
shall survive the termination of the Lease. Landlord further agrees that (a)
neither the Equipment nor any item thereof shall become part of, or otherwise be
or become a fixture attached to, the Premises, notwithstanding the manner of the
Equipment's annexation, the Equipment's adaptability to the uses and purposes
for which the Premises are used, and the intentions of the party making the
annexation; (b) the Equipment (or any item thereof) may be repossessed by
Lessor; (c) in connection with such repossession or otherwise, Lessor, and any
of its agents and employees, may enter upon the Premises for the purposes of (i)
guarding and maintaining the Equipment (or any item thereof), (ii) showing the
Equipment (or any item thereof) to prospective lenders, buyers, lessees and
sublessees, as applicable, and any of their respective agents and employees,
(iii) preparing, disassembling, dismantling, loading and/or removing the
Equipment (or any item thereof), and (iv) general inspections of the Equipment
pursuant to the Credit Agreement; and (d) the right of Lessor to enter the
Premises and the other rights granted to Lessor in this Waiver shall not
terminate until thirty (30) days after Lessor receives written notice from
Landlord of the termination of the Lease. If Lessor should exercise its rights
hereunder (and the failure to exercise such rights shall not be construed as
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a waiver thereof), Landlord agrees upon receiving prior written notice, to
provide ingress and egress to effect such exercise as well as provide reasonably
adequate space contiguous to the location of the Equipment to permit the
exercise of such rights. Landlord further agrees that Lessor has no obligation
to exercise any right granted to Lessor in this Waiver and that Lessor may elect
to remove only a portion or none of the Equipment from the Premises.
2. COSTS. Lessor agrees to indemnify and hold the Landlord harmless from
any out-of-pocket costs incurred by Landlord for any physical damage to the
Premises caused by Lessor solely from the exercise of its rights under clause
(b) or (c) of Paragraph 1 above.
3. LEASE DEFAULTS. Landlord further agrees to provide Lessor written
notice of any default or event of default under the Lease (each a "Default
Notice") simultaneously with the giving of notice of the same to Tenant or, if
no such notice is required under the Lease, at least thirty (30) days prior to
the date Landlord would be entitled to terminate the Lease. Each such notice
shall be sent to the address of Lessor set forth below the signature of Lessor
on the last page hereof or such other address as Lessor may from time to time
provide to Landlord, and shall be deemed delivered (i) in the case of notice by
letter, five (5) business days after deposited in the United States mail
registered and return receipt requested, (ii) in the case of notice by overnight
courier, two (2) business days after delivery to such courier and (iii) in the
case of notice given by telex or telecommunication, when given or sent with
electronic confirmation of receipt. During any time period when Tenant is in
default under the Lease, Lessor shall have the option, but not the obligation,
to cure any such default. Landlord shall accept such cure if it occurs within
thirty (30) days after Lessor has received the relevant Default Notice as fully
as if Tenant had fully performed its obligation under the Lease. Upon curing any
such default, Lessor shall be subrogated to the rights of Landlord against
Tenant and, as between Landlord and Tenant, such cured defaults shall no longer
exist.
4. LANDLORD'S REPRESENTATIONS AND WARRANTIES. Landlord hereby warrants and
represents to Lessor that (a) Landlord is the lessor under the Lease; (b) there
are no other agreements between the parties affecting or relating to the
Premises; (c) Landlord has all requisite power and authority to execute and
deliver this Waiver and no consents from any third party are required to do so;
(d) Landlord is the sole owner of the landlord's interest under the Lease and
has not conveyed, transferred or assigned any part of that interest to any other
person or entity; (e) no event of default (nor any event which with the passage
of time would constitute an event of default) has occurred under the Lease; (f)
there exists no litigation affecting title to the Premises or any adverse claim
with respect to the Premises of which Landlord has received notice; (g) there is
no condemnation proceeding pending with respect to any part of the Premises, nor
any threat thereof, of which the Landlord has received notice; (h) the Lease is
in full force and effect; and (i) the Premises are not subject to any mortgage
or other security interest in favor of any person which has not executed an
attornment agreement acceptable to Lessor with respect to this Waiver.
5. MISCELLANEOUS. This Waiver and all rights hereby granted to Lessor
hereunder shall remain in effect so long as there are any obligations owing by
Tenant under the Credit Agreement or any present or future agreement between
Tenant and Lessor which involves the Equipment. All the terms and provisions of
this Waiver shall be binding on and inure to the benefit of the respective
successors and assigns of Landlord and Lessor, and Landlord covenants and agrees
that any assignment, mortgage or other transfer of all or any part of its
interest as the owner and/or landlord of the Premises shall provide and shall be
subject and subordinate to all the terms and provisions hereof. Landlord shall
provide each of Tenant and Lessor a duly executed copy of the agreement
evidencing such subordination. Such agreement shall be in form and substance
reasonably satisfactory to Lessor. The rights and benefits of this Waiver may be
assigned or transferred by Lessor or to third parties who may become the lessor,
directly or indirectly, to Tenant. Lessor shall provide subsequent written
notice to Landlord and Tenant of the assignment or transfer. Headings in this
Waiver are for convenience of reference only and are not part of the substance
hereof. This Waiver shall be governed by and construed in accordance with the
laws of the State of California.
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IN WITNESS WHEREOF, Landlord and Lessor have executed this Waiver as of
the date and year first written above.
By:
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Name:
Title:
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Address:
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Attention:
GATX CAPITAL CORPORATION
By:
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Name:
Title:
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Address:
GATX Capital Corporation
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Attention: Contract Administrator
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